The idle musings of a former military man, former computer geek, medically retired pastor and now full-time writer. Contents guaranteed to offend the politically correct and anal-retentive from time to time. My approach to life is that it should be taken with a large helping of laughter, and sufficient firepower to keep it tamed!

Wednesday, May 30, 2012

The decay continues

News from around the world, both economic and military, continues to depress.

Over the last two weeks, Chinese consumers of thermal coal and iron ore have been defaulting on their contracts, sending prices sharply down.

The reason behind the cancellations is a hotly debated topic in the physical commodities market.

Analysts and traders have put forward two radically different theories - with almost opposite implications to global commodities markets: either Chinese buyers do not need the raw materials because [of] weak demand and high inventories - a bearish scenario - or they need the shipments, but they are defaulting to take advantage of falling prices and they plan to rebook at a lower costs - neutral to bullish.

The market has experienced both hypotheses at work: after the start of the global financial crisis of 2008, Chinese buyers defaulted en masse as demand vanished.

But in 2010, when fears about the euro zone sent prices down, Chinese customers defaulted on their shipments, only to rebook their cargoes shortly after at much lower prices.

Commodities traders tell me that probably both theories are at play.

. . .

Moreover, the amount of distressed cargoes looking for an owner in the Asia-Pacific market is quite significant, raising the prospect of some traders executing fire-sales.

I agree that both factors are probably at work; but in the light of previous reports, as discussed here (see the links in the first paragraph above), I'm willing to bet that more than half of it is because those cargoes are no longer needed and/or can't be sold into the already-glutted Chinese supply chain.

Unfortunately, if Israel does strike Iran, the consequences for the United States and the rest of the world are likely to be catastrophic. As Ralph Peters pointed out last year:

Israel has the capabilities to start a war in the Persian Gulf, but not to end one. And the United States would get the blame for an Israeli strike, anyway: We’d find ourselves sucked in, but struggling to catch up, militarily and diplomatically.

. . .

Let’s look at what “Bomb Iran!” really means: The Iranians may appear mad, but that doesn’t mean they’re fools, and they’ve studied the errors of other rogue states that sought nuclear weapons. The results? First, the Iranians have dispersed their research, development and production facilities. Second, they’ve fortified a number of vital sites in bunkers deep underground. Third, they’ve placed other link-in-the-chain laboratories and research sites in populated areas so that any attack upon them would generate large numbers of civilian casualties ― and very ugly images in the global media. Fourth, the Tehran regime has made this program a matter of nationalist pride. An attack on Iran’s nukes would be viewed as an attack on Iran, period, by the great majority of the population (even many regime opponents would “rally ‘round the flag,” in an Iranian version of the 9/11 effect). Fifth, Iran would respond promptly and asymmetrically in the wake of such an attack ― unless its extensive capabilities to hit back were also attacked and disabled from the start.

How would Iran respond to strikes on its nuke facilities? Inevitably missiles would be launched toward Israeli cities ― some with chemical warheads ― but these tit-for-tat attacks would be the least part of Tehran’s counterattack strategy. The Iranians would “do what’s doable,” and that means hitting Arab oil-production infrastructure on the other side of the narrow Persian Gulf. Employing its mid-range missiles, aircraft and naval forces, Tehran would launch both conventional and suicide attacks on Arab oil fields, refineries, storage areas, ports and loading facilities, on tankers in transit, and on the Straits of Hormuz, the great chokepoint for the world’s core oil supplies. The price of a barrel of crude would soar geometrically on world exchanges, paralyzing economies ― exactly as Iran’s leaders intend. Ten-dollar-a-gallon gas would be a brief bargain on the way to truly prohibitive prices. And, in the way of the world, Tehran would not get the blame. We would.

And we would be in one hell of a war, with the Middle East literally aflame and our Navy able to conduct only limited operations (if any) within the Persian Gulf, given that the body of water would become a shooting gallery: Even our finest surface-warfare ships can’t fight or maneuver effectively in a bathtub. The flow of oil would not resume, and we would have no idea how to end the war (not least, since we’re unwilling to inflict serious pain on our enemies anymore).

In a related development, the United Arab Emirates expects to open a new pipeline next month. It will funnel most of that country's oil exports to a new terminal outside the Persian Gulf, so that Iranian threats to seal the Straits of Hormuz will no longer affect the UAE's ability to sell its oil. This indicates that the UAE fully expects Israel and/or the USA to do something in the not too distant future about the threat posed by Iran's nuclear program. The pipeline is an attempt by the UAE to insulate itself from as much as possible of the economic fallout from any attack.

Last year I wrote about the very great risk of a major war erupting during the next year or so. These developments (plus those in Syria, North Korea, Pakistan, etc.) do nothing to make me believe that the risk has in any way diminished. Given the current state of the world's economies, such a conflict will almost certainly lead to very severe difficulties indeed, as Ralph Peters pointed out.

As the hymn laments, "Change and decay in all around I see". Personally, I'd prefer a lot more (positive) change and a whole lot less decay!